Mortgage rates have been tumbling, and the number of deals available rising, following the introduction of a multibillion-pound Government scheme - Funding for Lending - in August. The scheme offers participating banks funds from the Bank of England at cheap rates on the condition they lend it out to individuals and businesses.

However, HSBC is not part of the Funding for Lending scheme and said that, as with its mortgages generally, the deal is primarily funded by retail deposits.

This lower rate could also be seen as retaliation to other mortgage providers slashing their offerings.

Peter Dockar, head of mortgages at HSBC, said: ‘We have seen increasing numbers of customers seeking the security of a fixed rate and I expect this trend to continue. With the security of our retail deposit funding, HSBC is committed to offering competitive rates to benefit our customers.'

However, much of the strongest competition among mortgage lenders has been aimed at people with bigger deposits.

The MoneySupermarket research found there are six per cent fewer mortgages - 258 - on offer for those with a 10 per cent deposit than in May – although there are 16 more than in August when the scheme launched.

Borrowers face higher hurdles to jump in taking out a mortgage as lenders generally have tightened their borrowing criteria amid the difficult economy. Low-rate deals tend to come and go quickly.

Rachel Springall, spokeswoman for comparison website Moneyfacts, said similar deals to that being offered by HSBC have recently appeared on the market and have been withdrawn within weeks.

She said: ‘It's great to see a mortgage deal that breaks the two per cent barrier. However, applicants do need to take into consideration application fees and other costs and not just the mortgage rate.

‘Tesco Bank pulled their direct 1.99 per cent two-year fixed deal at 60 per cent loan-to-value after just one month, with a £995 fee, showing market-leading rates don't stay around for long.’

Mortgage thaw: But the majority of new deals have been aimed at those with large deposits

MORTGAGE MARKET THAW: TOP DEALS CURRENTLY AVAILABLE

As well as the two-year fixed deals that HSBC has launched today, it has also unveiled new five-year fixed-rates.

Borrowers with a 40 per cent deposit can get a rate of 3.19 per cent with a £499 fee or a rate of 3.39 per cent, fee-free.

A fresh round of mortgage rate cuts last week delivered a new record low five-year fixed rate at just 2.79 per cent.

The deal from Co-op Bank set a new benchmark for increasingly popular five-year fixed rate mortgages, but borrowers will need a 40 per cent deposit and to pay a fee of £999.

Yorkshire BS offers a five-year fix for those with 25 per cent deposits at 3.04 per cent with a £995 fee.

Borrowers with smaller deposits also saw rates cut by the Co-op, with those able to put down a 10 per cent deposit handed a rate cut of 0.3 per cent to take a fee-free five-year fixed rate mortgage down to 4.79 per cent.

The Co-op’s move has delivered the lowest ever five-year fix offered, considerably below the 2.95 per cent rate offered by RBS earlier this year which also carried a huge £2,495 fee.

Further rate cuts were also been delivered by Leeds Building Society, which is offering those with a 25 per cent deposit a two-year fix at 2.54 per cent with a £999 fee. This is the lowest rate on the market but it comes with a catch, homeowners must take Leeds’ buildings insurance otherwise the rate rises to 2.78 per cent.

Yorkshire BS has a two-year fix at 2.59 per cent with a £995 fee for borrowers at the same deposit level, while Tesco Bank has a 2.39 per cent rate for those with 30 per cent to put down.

Tesco has, however, pulled its 1.99 per cent record-low two-year fix which was being offered to borrowers with a 40 per cent deposit.

Last week, the Council of Mortgage Lenders said that a fresh burst of low interest rate deals had tempted home buyers and remortgagers and lifted lending to its highest level in almost a year.

It said there were: 'Signs that the market weakness of recent months may be coming to an end.’